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Sales and Sales Mix Variance

1. Introduction

  • Variance analysis is not limited to costs—it also applies to revenues.
  • Actual sales and profit can deviate from budgeted values.
  • Due to fixed costs, it's better to analyze contribution margin instead of profit.
  • Key types of revenue-related variances:
    • Sales Price Variance
    • Sales Volume Variance
    • Sales Mix Variance
    • Contribution Margin Variance

2. Single-Product Sales Variance Example

Scenario: Book Publisher

Metric Budgeted Value Actual Value
Units Sold 4000 3600
Selling Price Rs. 300 Rs. 260
Variable Cost Rs. 180 —
Contribution per Unit Rs. 120 Rs. 80
Total Sales Revenue Rs. 12,00,000 Rs. 9,36,000
Total Contribution Rs. 4,80,000 Rs. 2,88,000

Variance Calculations

  • Total Sales Variance = Rs. 9,36,000 − Rs. 12,00,000 = Rs. 2,64,000 Adverse
  • Total Contribution Variance = Rs. 2,88,000 − Rs. 4,80,000 = Rs. 1,92,000 Adverse

Split into Components:

  1. Price Variance = (Actual Price − Budgeted Price) × Actual Quantity
    = (260 − 300) × 3600 = Rs. 1,44,000 Adverse

  2. Volume Variance = (Actual Quantity − Budgeted Quantity) × Budgeted Price
    = (3600 − 4000) × 300 = Rs. 1,20,000 Adverse

  3. Contribution Margin Variance (Volume effect):
    = (3600 − 4000) × Rs. 120 = Rs. 48,000 Adverse

🔍 Insight: Most loss in contribution was due to price realization drop.

3. Multi-Product Sales Mix Variance Example

Scenario: Deodorant Manufacturer

Brand Budgeted Mix Budgeted CM/KL Budgeted Volume (KL)
Royal 0.40 Rs. 20,000 8000
Cool 0.35 Rs. 12,000 7000
Spice 0.25 Rs. 9,000 5000
Total — — 20,000 KL
Budgeted CM — — Rs. 28.90 cr

Actual Values

Brand Actual Mix Actual CM/KL Actual Volume (KL)
Royal Lower Rs. 22,000 Less than 8000
Cool Lower Rs. 8,000 Less than 7000
Spice Higher Rs. 9,000 More than 5000
Total — — 22,000 KL
Actual CM — — Rs. 26.90 cr

4. Contribution Margin Variance Analysis

Total CM Variance

  • Total CM Variance = Actual CM − Budgeted CM =
    Rs. 26.90 cr − Rs. 28.90 cr = Rs. 2.00 cr Adverse

Step-by-Step Breakdown

Column Description
C2 Actual CM (Actual Volume × Actual Mix × Actual CM)
C3 Budgeted CM for Actual Volume and Actual Mix
C4 Budgeted CM for Actual Volume and Budgeted Mix
C5 Budgeted CM for Budgeted Volume and Mix

Variance Decomposition

  1. CM Rate Variance = C2 − C3 =
    Rs. 1.60 cr Adverse (due to lower contribution margins)

  2. Sales Volume Variance = C3 − C5 =
    Rs. 0.40 cr Adverse (due to overall sales volume differences)

  3. Sales Mix Variance = C3 − C4 =
    Rs. 3.29 cr Adverse (shift from profitable mix)

  4. Sales Quantity Variance = C4 − C5 =
    Rs. 2.89 cr Favourable (due to volume increase)

5. Summary Table

Type of Variance Description Result
Total CM Variance Overall deviation in contribution margin Rs. 2.00 cr Adv.
CM Rate Variance Actual mix, actual quantity but change in CM rates Rs. 1.60 cr Adv.
Sales Volume Variance Change in volume at budgeted mix & CM rates Rs. 0.40 cr Adv.
Sales Mix Variance Change in mix at actual quantity, standard CM Rs. 3.29 cr Adv.
Sales Quantity Variance Change in volume at standard mix Rs. 2.89 cr Fav.

6. Managerial Insights

  • Even with higher total sales, contribution margin dropped due to:
    • Change in sales mix (more of less-profitable product)
    • Drop in contribution rate (discounting, market dynamics)
  • Suggestion:
    • Automate variance analysis with templates
    • Let managers focus on decisions, not calculations

7. Sales Variance Formulas

Variance Type Formula
Sales Price Variance (Actual Price − Budgeted Price) × Actual Quantity
Sales Volume Variance (Actual Quantity − Budgeted Quantity) × Budgeted Price
CM Rate Variance (Actual CM − Budgeted CM) × Actual Quantity
Sales Mix Variance (Actual Mix − Budgeted Mix) × Standard CM × Actual Volume
Sales Quantity Variance (Actual Volume − Budgeted Volume) × CM @ Budgeted Mix
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